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INSURERS: BULLETIN 95-06

Office of the Chief Actuary

Bulletin 95-6

Date: June 1, 1995

To: All Admitted Insurers Authorized to Transact Life Insurance and Other Interested Persons

SUBJECT: Recognition of Immediate Payment of Claims in Life Insurance Reserves

Effective January 1, 1995, the California Department of Insurance requests that actuarial functions in reserves recognize the immediate payment of claims for new business issued on and after January 1, 1995. This is consistent with sound actuarial principles and the general principle of recognizing actual obligations in reserving formulas.

For in force business issued prior to January 1, 1995, the appointed actuary is responsible for seeing that adequate reserves are set up for the recognition of immediate payment of claims for this business. The Department requests that the first actuarial memorandum prepared on or after 12/31/95 comment on how this was considered and addressed. If an actuarial memorandum is not required, the Department requests that a letter, explaining how this is to be accomplished, be sent to the Department's Chief Actuary by July 1, 1996.

For supporting information, see page 720 of the NAIC Proceedings 1993, 3rd Quarter for NAIC Actuarial Guideline HHH, adopted in 1993.

Adequate recognition of liability in reserves for the following related items is also necessary:

  1. Refund of any premiums paid beyond the date of death in the policy year of death. (Annual Statement, Exhibit 8, Section G.)
  2. Waiver of any fractional premiums not yet due in the policy year of death (where reserves assume that an annual premium is paid). This can be provided for by continuous premium functions in reserve formulas or in Exhibit 8, Section G.
  3. Interest on claims from the date of death to the date of the statement (e.g. 12/31/95) on unpaid claims consistent with the practice of the company or legal requirements in crediting such interest. (Annual Statement, Page 3, line4.1)

Questions regarding this bulletin may be referred to:

W. Harold Phillips,
Senior Life Actuary
Department of Insurance
300 S. Spring Street, South Tower, 9th Floor
Los Angeles, CA 90013
Telephone (213) 346-6174

CHUCK QUACKENBUSH
Insurance Commissioner

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